🌸 Zcash: Blossoming Or Wilting? — Issue No. 77

📰News

This week, the Zcash network — known for using a mind bending form of cryptography called zero knowledge proofs to enable privacy preserving transactions — successfully executed an upgrade hardfork. The hardfork, codenamed Blossom, included only minor changes. Despite this, you'd be wrong to think there isn't a lot going on for Zcash.

For one, the long running community debate about whether to renew the network's protocol-level developer funding is finally reaching its culmination. Additionally, a Zcash researcher recently announced a breakthrough that, if it holds up, may have far reaching implications. Despite all this, sentiment around Zcash in the broader crypto community seems to be low.

In this edition of the Build Blockchain newsletter, we'll dive into everything going on with Zcash, including the hardfork, the governance debates, and the cutting edge research.

Blossom

Changes originally proposed for the now-activated Blossom upgrade included shortening the time between blocks, enabling a new duel hashing algorithm mining scheme, and splitting the distribution of developer funds in the block rewards (more on this soon). In the end, the only change that shipped in this upgrade was a reduction of the target block time from 150 seconds to 75 seconds. (Link).

Shortening the block times allows for transactions to be considered confirmed faster. It also allows for greater overall network throughput, though this improvement is academic for now, because the network is not currently operating anywhere near capacity. The truth is, with only the block time change, this is not a particularly exciting upgrade.

Why were other proposed changes removed? Surely there were many reasons, but it seems clear a large factor was the community's focus on the developer funding debate. Let's unpack what's been going on.

Dev Funding Proposals

Zcash is often acknowledged for living on the cutting edge of cryptography. Often overlooked, though, is the way Zcash has also explored new territory around governance and funding of decentralized networks.

Zcash was launched three years ago by founders of the Electric Coin Company (ECC), formerly called the Zcash Company. From day one, the network included consensus code to distribute 20% of new coins minted in each block to themselves, but only for the first four years. Some of these coins went to founders and early investors, while others were used by the ECC to fund development. The money from the rewards was also use to fund the Zcash Foundation— a separate non-profit entity tasked with supporting the Zcash community. In 2020, those rewards are set to run out.

Over the last year, the Zcash community has engaged in a lengthy debate on whether to renew the funding and how to distribute it. The hope is that the community will achieve some general agreement, such that a new funding scheme can be implemented via hardfork some time next year. This begs the question, how can a digital community achieve such consensus? To start, the process has occurred largely on the Zcash community forums, where thirteen distinct proposals were made. (Link).

Three methods were used to assess community sentiment around these proposals. First, a community advisory panel, comprised of several dozen individuals who were previously elected by the community, provide their input. Second, a vote was held on the community forum itself. Finally, an informal, anonymous, coin weighted vote was organized on chain by community members. (Link).



By using these methods to gather sentiment on all these proposals, two clear leaders emerged. The first was a "keep it simple" proposal, which simply keeps the 20% rewards and splits it half and half between the ECC and the Foundation. (Link).

The second proposal also keeps the 20% proportion of the block reward, but allots 35% it to the ECC, with 25% going to the Foundation, and the remaining 40% going to a special "grants" program. The grants are to be administered by the Foundation, and should go to other developers in the community working on important projects, such as chain interoperability. (Link).

At the time of this writing, it seems that the community is coalescing around the 35/25/40 proposal, or at least some version of it. The final answer, of course, won't come until the hardfork actually takes place. Only then will we see who runs the updated software. Regardless of what happens, the whole process has been fascinating to follow.

Halo Proofs

Assuming the governance debate comes to a fruitful conclusion, what will the funding allotted on the network pay for? To help answer this question, the ECC published a "flight plan," laying out their ambitions for the short, near, and long term. The list includes many practical updates, like better mobile SDKs, and view-only keys for shielded addresses. It also highlights interoperability, in particular with the Ethereum network. Finally, it lays out a striking plan to scale the Zcash blockchain horizontally by leveraging bleeding edge technique called Halo Proofs. (Link).

Halo proofs are a new zero knowledge construction discovered this year by Zcash researcher Sean Bowe. They were announced in September. It's important to point out that the research has not yet been fully peer reviewed. If they hold up to scrutiny, Halo proofs are poised to be a major breakthrough, not just for Zcash, and not even just for cryptocurrencies, but really for the whole field of applied cryptography. (Link).

The technique developed by Bowe allows for the creation of efficient recursive zero knowledge proofs. In short, it enables the creation of proofs-of-proofs that can be validated quickly, and don't require a trusted setup. This means a cryptographic guarantee of any amount of computation can be compressed into a single proof that can be verified instantly. (Link).

As an example, the researchers generated a Halo proof for a Bitcoin block. This proof includes not just the Proof-of-Work done by the miner of the block, and not just the signatures for transactions in the block, but also the Proof-of-Work and transaction signatures for every single ancestor block, back to the genesis block mined by Satoshi in 2009.

In theory, verifying this single proof is as secure as actually downloading and checking the entire Bitcoin blockchain yourself. This is what full nodes currently do, and the process can take hours or days to complete. This proof, however, can be executed on a normal computer almost instantaneously. The possible applications for such a powerful cryptographic primitive are unbounded.

💡Commentary

Long time readers of this newsletter know I rarely discuss price. There are a number of reasons for this, but among them is the fact it's just not that interesting on a day to day basis. With Zcash, though, the price is the elephant in the room.

Zcash is down more than 40% this year alone, to say nothing of its 97% retraction from its 2017 high. There are plenty of coins with similar trajectories, but few of them have a clear use case (privacy) implemented with cutting edge tech, an engaged and educated community, and an absolutely top notch team of researchers and engineers pushing the network forward.

What gives?

Well, honestly, I don't know. But this section is labeled commentary, so I'm going to speculate a bit. The way I see it, there are two ways to interpret Zcash's struggles. One is optimistic and the other is pessimistic.

The optimistic take is that the market has largely been reacting to uncertainty, especially around the dev funding and the governance process surrounding it. If the funding issues get resolved, as it now seems likely they will, then the ECC and rest of the community can get back to work and start to deliver the promising things in the pipeline. If this happens, we may see market sentiment start to improve.

The pessimistic possibility is that the market just doesn't see privacy as a valuable differentiator. Sure, Zcash has a great team and cool tech and an enthusiastic community, but that's just it: outside the small but passionate community, most people don't care about privacy. They may say they do, but it's not how they behave. Just look at how little regard most people show for their privacy when using social media, for example!

The second possibility makes me shudder, because it wouldn't just spell doom for Zcash, it would cast doubt on the entire promise of crypto to deliver something that makes the world better. Imagine a world where crypto sees mainstream adoption, but we don't have rigourous privacy protections. Is that a world you want to live in?

Here's to hoping Zcash, and other projects aiming to give us strong privacy on decentralized cryptonetworks, have a bright future ahead.